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Here are the 3 factors that could actually make home prices go up over the next year

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  • A new report by Bank of America (BofA) forecasts that home prices will drop by around 2.3% before hitting a bottom in April 2021, but it also sees some upside potential.
  • But a strong market prior to the pandemic, the federal stimulus package, and a dip in the 30-year mortgage rate are all factors that could lead to slight price growth.
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As of last week, 95% of the US was under a stay-at-home or shelter-in-place order.
While the housing market was on the upswing at the start of 2020, it reversed course as the coronavirus outbreak brought most of the country to a halt.
A new report by Bank of America (BofA) forecasts that  home prices will drop by around 2.3% before they hit a bottom in April 2021. To put in perspective what a sudden, downward shift that is, BofA had estimated prior to the pandemic that home prices would increase 4% to 5% in 2020 alone.
According to BofA, lower home prices will be a result of lower household incomes, with the typical household income expected to drop 2% lower than pre-pandemic forecasts. The study predicts unemployment will increase to around 16% in the second quarter of this year and average 7.9% in 2021, dragging home prices down.
However, BofA noted that its home price outlook is "tame" relative to the outlook for home sales, with a near 40% decline in home sales seen in coming months, and no return to normal levels until the end of 2021. Pricing will be relatively protected because it doesn't see a high foreclosure risk and considers the market pretty well positioned, with a lean inventory available.
In fact, the bank even sees some factors that could lead to slight price growth in the post-pandemic housing market.

The market was on the upswing pre-pandemic

As BofA explained, housing was looking strong before COVID-19.
In the last quarter of 2019, million-dollar sales were up 11%, and housing prices overall were up. On an annual basis, 2019 saw the most first-time homebuyers since 1993, according to Genworth Mortgage Insurance. In addition, inventory was at a record low.
The market's position in the beginning of March may ease the impact of the pandemic.

The Payroll Protection Program and CARES Act may prove more successful than BofA predicts

"The Payroll Protection Program may prove to be more successful than we expect at sustaining consumer confidence in the context of elevated unemployment," BofA reported.
And if that proves to be the case, consumer confidence could contribute to a slight growth in home prices.
In addition, the CARES Act could also help ease the pandemic's impact on the housing market, as it provides for six to 12 months of forbearance on mortgage payments for people who can't afford them.
"We think upwards of 15%-20% of borrowers will take advantage of this forbearance, which should substantially reduce the potential supply of distressed properties," BofA said. "Meanwhile, the temporary elimination of mortgage payments for some borrowers could help provide stimulus to consumption elsewhere."

The 30-year mortgage rate could drop below 3%

Finally, the 30-year mortgage rate, which hit a record low in March after the coronavirus was declared a global pandemic, could go even lower, and maybe goose home prices.
"If it [30 year mortgage rate] is able to drop below 3% in the months ahead, it would substantially offset the hit to affordability associated with the expected drop in household income," the report reads.
"In addition, it would allow for increased savings through the mortgage refinancing channel, which would provide additional support to the housing market."
SEE ALSO: Here's how much home prices will drop over the next year — and when they're expected to hit bottom
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* This article was originally published here Press Release Distribution

Source - https://www.businessinsider.com/?hprecirc-bullet

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